BUSINESS
Nigeria Government must develop means to manage economy in recession – Analysts
Contrary to the belief that the Nigerian economy is heading towards recession, some financial analysts have said that the country is already in recession but tasked the economic team of the President Muhammodu Buhari administration and the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), to critically look into how to manage the economy during recession, as the committee concludes the 251st edition of its meetings today.
As crude oil prices dived lower, threatening to dip below $40 a barrel for the first time since the financial crisis of 2008 and notching their longest losing streak since 1986, economies around the world are catching cold.
In view of this, the former President/Chairman, Chattered Institute of Bankers of Nigeria, CIBN, and current Managing Director/CEO, Maxifund Investment and Security Plc, Mazi Okechukwu Unegbu, told our correspondent on Monday on phone that the MPC and the federal government must not come up with any long-term planning, because in a recession you don’t make long-term plans.
Unegbu said, “I do not agree with people saying we are heading to recession, because we have been in recession right from the last quarter of 2015, it is just that people were padding figures here and there.”
For instance, the nation has consistently recorded negative inflation for three consecutive quarters, “what they should be talking about is how to manage the economy for recession, by devising new ways of managing the economy”, he said.
He warned the committee not to make a mistake of tampering with the flexible exchange rate for now, adding that it is just a new policy but all they need to do is to tinker with the other aspects of the economy.
“For instance, what is our productive base? Nobody is planning for production but only talking on consumption.
“The president and the finance minister must look outside the box to see more people, in order to get more suggestions on how to manage the decaying Nigerian economy.
“I don’t think they should change anything for now but to leave the monetary indices the way they are, because changing any of them now would result in flip-flop, but must be able to tinker with some of the things to stabilises the economy”, he noted.
Also, the Managing Director/CEO, GTI Securities, Mr. Babatunde Oyekunle, said that the committee have to consider so many factors, but believes it is very important to consider the projected global slower economic growth due to the Brexit.
He explained that Nigeria is currently battling with the rise in headline inflation at 16.5 percent coming from 15.3 percent in May, with the first Quarter Gross Domestic Product (GDP) at 36 basis point negative which is not very good for the economic growth the country, couple with the challenges of insecurity, vandalisation of pipelines, devaluation of the Nigerian currency, naira, among many other critical issues they need to consider.
His words: “With the Monetary Policy Rate (MPR) at 12 per cent, they may want to increase or decrease it, but increasing the MPR in a contrasting economy is not very good, because it will slow down the economy growth, and at the same time, although it may boost liquidity of dollars which will definitely generate foreign direct portfolio into the country, but due to the state of the Nigerian economy, I expect them to come up with an urgent outcome to stimulate the economy.
He said although it would have been good if the MPR is increased because of the rise in inflation “but I will not expect them to increase the MPR but rather leave it unchanged, and even leave the CRR at 22.5 percent and liquidity ratio at 30percent because of the challenges facing the country.”
It would be recalled that the International Monetary Fund (IMF) two weeks back predicted that the Nigerian economy would contract by 1.8 per cent this year and the Minister of Finance, Mrs Kemi Adeosun, somehow agreed with the international body when she said that the economy was ‘technically in recession’. This makes the issue of finding solution to the problem of recession an urgent issue to be tackled.
Apart from the forecast of IMF and the ‘tactical admission’ of the minister, the National Bureau of Statistics (NBS) equally announced earlier 16.6 per cent inflation figure for June. This month’s Consumer Price Index (CPI), an 11-year high, represents 0.9 per cent rise from 15.58 per cent of the previous month and the increase marked the fifth time this year inflation has climbed. The NBS statistics revealed these.
To tackle the problem of baffling inflation, analysts have been calling for retention of Monetary Policy Rate (MPR) which is the benchmark interest rate, at 12 per cent. In May, MPC retained the MPR at 12 percent with the asymmetric corridor at +200 basis points and -700 basis points and also left the cash reserve requirement (CRR) and liquidity ratio (LR) unchanged at 22.50 percent and 30 respectively.
For instance, analysts at FSDH Merchant Bank Ltd say this about the situation, “Looking at the macroeconomic developments in the economy, we expect that the MPC members will vote to maintain the MPR, CRR and LR at the current levels.
“However, complementary fiscal measures are required to restore investors’ confidence and pull the economy out of recession.”
“There are arguments to support an increase and a hold in rates when the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) meets on July 25-26, 2016. Meanwhile, there is no argument in support of rates cut given the current economic situation.”
“The GDP contracted by 0.36 per cent in Q1 2016, compared with the growth of 2.11 per cent in Q4 2015. The Nigerian economy faces risks from shortage of foreign exchange and weak consumer demand. We expect a higher level of contraction in Q2 2016, when the National Bureau of Statistics (NBS) releases the Q2 2016 GDP figure on August 25, 2016.”
According to them, “the impending further contraction in the GDP was the major risk the economy faces at the moment, and a hike in the MPR will worsen the outlook. A hold decision with complementary fiscal expansionary measures should stimulate the economy.” They noted further; “the pressure on the external reserves remained unabated since the last MPC meeting in May 2016.
FSDH analysts further said: “The external reserves have not received the anticipated boost from the adoption of a flexible exchange rate policy in June 2016. The external reserve is still strongly dependent on oil earnings, which has been inadequate because of the output shortfall. The 30-day moving average external reserves declined marginally by 0.49 per cent from US$26.48billion at the last MPC meeting to US$26.35billion as at July 18, 2016. We expect the MPC to adopt a hold decision.”